There has been a great deal of talk in the UK press of late about equity release. Is it a good idea? Is it safe? Do retirees get a raw deal from such plans? These are all questions that the newspapers have been covering, but what are the answers? In this post, we aim to clear up some of the uncertainty surrounding equity release.
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What is Equity Release?
Let’s get back to basics to begin with. For those who may have heard of equity release but aren’t entirely sure exactly what it is, it is a financial product that is available to retirees and offered by a number of financial organisations. There are various different types of equity release scheme available, but essentially, they allow you to take out a loan, which is secured against a percentage of the value of your home. Once you’ve taken the loan, you can continue to live in your home, and upon death the loan is repaid by funds raised from the sale of your property.
Who Uses Equity Release Plans?
A number of retirees from all walks of life make use of equity release schemes. In fact, recent reports show that popularity of such products is on the up, with a 6% increase between Q1 and Q2 of this year. In Q2 2012, it was reported that 4,302 plans were sold. This is the highest number seen in over 2.5 years.
Why Is There So Much Negative Press Surrounding Equity Release?
Equity release was an extremely popular way for retired homeowners to unlock cash from their homes. However, economic turbulence at the time resulted in rising interest rates and huge drops in house prices. Many pensioners took out loans to invest in broker bonds, which delivered poor returns, and they were now tied into an equity release plan. This left thousands of pensioners in the position of negative equity (the amount borrowed exceeded the value of the home, meaning the debt is left behind to beneficiaries). Ever since, equity release has been the topic of much debate.
What Has Changed Since Then?
Equity release has since become tightly regulated by both the FSA and The Equity Release Council (formerly SHIP). Companies within the equity release industry can volunteer to sign up to The Equity Release Council and adhere to its code of practice. This ensures greater levels of protection to the consumer, against things such as negative equity.
So, Is It Safe?
Equity release certainly isn’t the best option for everyone – it very much depends on your individual circumstances. The Equity Release Council has announced that it plans to raise the profile of the industry, and to do this, consumers need to get a better deal than they did several years ago. Judging by the recent figures, it would appear that consumers are indeed better protected, getting a better deal and gaining confidence in the product.
Equity release is not a decision to be taken lightly. Discuss it with your family and seek independent professional advice.
This post was written by John Harper from 55 Plus Equity Release. John loves blogging about the UK financial industry.